Redesign Your Financial Behavior with Psychological Traps

Have you ever told yourself you would do one thing but then done another? If you’re human, then no doubt you have. But don’t worry, you’re not alone. We like to think we act rationally, but when it comes down to it, our decisions are influenced more by our emotions than our thoughts. There are plenty of situations where our most carefully laid plans fall apart – that restaurant dinner that got expensive, that budget that just didn’t work, or that bar tab that was out of hand.

In this article, we’ll look at how to recognize where our careful plans fall apart, and how to set psychological traps that keep ourselves on track.

Rational Plans: Good, But Not Enough

To improve our financial lives, we do things like read financial planning books to make decisions about retirement, or create multi-category budgets with monthly rollovers and manual data entry. These solutions have their benefits, but it’s important to note that we have a lot of power over the little things that add up to a huge impact. Those little things are what we’ll work on today, and we’ll assume that you’ve already made some rational plans about how to take control of your finances.

Habits: Powerful, But Hard to Change

Habits are powerful because we do them regularly. We can keep up some complicated plan for a while, but when we’re stressed or out of energy, that plan dies. It’s our daily habits that survive. This is why the most important part of any real behavior change is in the small things that we do every day.

What habits do you have? Think about a time where your plans got ruined by special circumstances, something habitual. Maybe you had a budget and it fell apart; maybe you were trying to save up for something but didn’t make it. Got one? Good.

You’re a creative person. Right now, I bet you can find one small way to change your financial future. I bet we can set a trap that will help you stay on track with your plans; that is, we can set up a little structure that is easy to make now, waits for the right moment, and then catches you right when you’re about to fall.

To help you set this trap, let’s take a few common examples of financial mishaps, and then figure out ways to prevent them from happening.

Challenge 1. Dining With Friends

Perhaps you’ve already saved a lot of money on dinner by cooking at home. But your friends are all going out for dinner, and of course you’re going to go. Taking control of your finances doesn’t mean sacrificing your friendships! Your friends pick a restaurant, and you end up paying $40 for dinner.

How do you stay within a better budget? It’s not realistic to stop hanging out with friends, and it’s embarrassing to admit to everyone that you’re not comfortable with the cost.

One Solution: When going to dinner, put your cash limit in your wallet, and nothing more. Perhaps this limit is $15. It’s much easier to order a cheap menu item or a salad than it is for you to get up halfway through dinner to run to an ATM.

Challenge 2. Pay More Towards Debt

Sure, it’s easy to say “I’m going to pay $___.__ to my debt every month” (fill in your own amount). However, when the monthly statement comes around, you second guess yourself and only pay half as much, keeping the extra cash “just in case”. This cash then ends up being spent on stuff – that horrible, house cluttering, expensive, environment crushing junk that provides more trouble than happiness.

One Solution: Set up automatic monthly payments for your goal amount. It’s easier to monitor your spending when you know for a fact that if that account balance goes too low, your automatic payment will overdraft the account. You can always cancel or change the payment in the case of emergency, but if you’re just hankering for some stuff, canceling that payment sure gets harder to justify.

Challenge 3. Going Out for Drinks

You go to happy hour after work with some buddies to relax a bit. You didn’t plan on spending a lot, but all of a sudden everyone is buying rounds of beers, and you’re up next. Your wallet feels lighter after it leaves $30 at the bar.

How do you keep yourself from getting into this situation without being antisocial?

One Solution: One option is to volunteer to be the designated driver. You won’t drink, your wallet will be fatter, your friends will love you, and you’ll feel great in the morning.

Challenge 4: The Online Shopping Spree

Your plan to getting out of debt is going along smoothly, but you see that new set of Mad Men DVDs you’ve been wanting on sale, and before you know it you’ve spent yourself into a hole. You later realize it probably wasn’t necessary, but at the time it just seemed easy.

How do you keep yourself from spending without turning off the internet altogether?

One Solution: Make it as hard as possible to make a purchase. Delete all saved credit and debit card info from shopping websites, so you have to enter it each time. Hide the cards in a safe, or freeze them in an ice cube. Put our reminder stickers on your cards while you’re at it. Now, you have valuable extra time to rethink each purchase before making it.

Now, Make Your Own

None of these solutions are perfect, and there are infinite other challenges and tactics to take in your financial picture. The trick is to develop the right mindset. With this mindset, you pay attention to where your spending doesn’t match your goals. You realize that you’re human, not a bad person, and that in the heat of the moment your plans can fall apart.

Then, you plan for that moment. You use your creativity, you set the stage for your emotional mind, and when that moment comes, you triumph over it. So now it’s your turn: What traps can you lay for yourself?

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Please leave any techniques that you think of in the comments, so others can benefit from your creativity.

This post was published by admin, for » ReadyForZero.
ReadyForZero is a company that helps people get out of debt on their own with a simple and free online tool that can automate and track your debt paydown.

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My worst habit is buying coffee and breakfast in the morning rather than eating at home and getting coffee at work (where it’s free!). Ditto with buying lunch – I buy all the stuff to make my lunch at home and bring it in with me but…I don’t bother and buy lunch everyday. So that’s approx $10 a day/$50 a week/$200 a month! Unreal!

Sean

I have to agree with Peter unfortunately. I spend the same amount on lunch and too much on the weekends going out to eat. 🙁

Leticia

@peter Some possible “traps” that come to mind for you:
@twitter-168134048:disqus
1. change your route to work so you don’t go by that coffee shop;
2. wake up later and leave no time in the morning to stop to buy coffee;
3. buy some (cheaper) pastries (or whatever you have) at the supermarket the night before so you can grab them in the morning as you leave for work and can’t justify getting them at the coffee shop.
4….I’m sure there are many more you can come up with based on what you know about your habits 🙂

We (wife and I) set up receipt boxes on our kitchen desk. Each box is labeled – household, food, vices, pets, grooming, misc. Our plan is to calculate the actual amount spent on these items at the end of the month to get a reality check on what we are actually spending – no more guesstimates.

MIZ

a few folks at the office feel extra generous all the time and alternate getting all 5 of us coffee. when asked, I say no thank you, but they bring me coffee anyway. This, in turn, makes me feel guilty, feeling like it’s my turn to treat everyone. I understand that in the end it evens out – if i were going to buy coffee everyday, that is. But if I’m not going to buy myself coffee everyday, this coffee pool is actually putting a huge dent in my budget. At 20$ a trip (sometimes more) If I buy coffee for everyone at least once a week, I have overspent my coffee budget for myself, since if I buy coffee for myself every weekday it would really only come out to about 10 bucks. How do I break away from the group and stop them from bringing me an unsolicited coffee? [first world problems]

1) Whenever somebody goes to the coffee shop, walk with them. When you get there, don’t buy any, and make sure they don’t get any for your either. (Or just buy yourself a cup). Benefit: taking a walk every day.

2) Drink all your coffee in a nice, big, porcelain coffee mug. Announce you’re not drinking out of disposable cups any more – bad for the environment! It’s probably too difficult (and annoying) to carry your big mug with all the other cups, so you’ll be required to get your own coffee.

Teresa

How about buying a cheap coffee maker and everyone can chip in to buy a canister of coffee, jar of creamer and some sweetener. It would save everyone a lot of money. (and probably be able to get more work done 🙂 )

michwake

I know that it isn’t the cheapest but our office has the K-cup machine. With discounts, the cups themselves are only about $.50 or less per serving. That is a lot cheaper than buying a cup at the store, people can select the kind they want (flavors, strong, decaf…). It may not be as cheap as brewing a whole pot but it is still cheaper than a daily trip to Starbucks and you still get variety.

About 9 years ago I desperately wanted to quit a job I didn’t like and start a new venture. I gave myself $60 in cash each week plus gas money. If I wanted coffee or lunch out it came out of that $60. It worked and I was able to quit my job in about 5 months and never go back to a corporate job.

Jennifer Dunn

I keep paying off my last remaining credit card and running it back up again. I’m going to give it to my mother so that every time I want to make a purchase on it I have to make the drive to her house and ask her to retrieve it for me. Some of the things I buy are just silly so I’m sure even the thought of asking mom to find my credit card so I can buy them will deter me!

I love that idea. Bringing someone close to you in on the plan is a great way to stay strong.

michwake

Great advice! I’ll do the same.

Jusfocuz

There is a shock effect you get from actually adding up the receipts and even by seeing the sheer number of receipts that you have accumulated. mint is a good tool for some, but it should not be used as a one size fits all solution.

VTGal

I get paid every other week. Just before pay day I figure my budget, then I put post it notes on my debit cards, I have two. This way when I get to grocery store or gas station, I know exactly what I can spend. When I spend at that location, I adjust the amount on my post it note, so I know what’s left in my budget for each category, food, gas, cash

That’s a good one! Carrying cash can definitely lead to spending money unexpectedly.

rivermoon1970

My problem is impulse buying, and Kickstarter. I finished all my kickstarter projects and deleted the app. Everytime I think I am going to go on there i now have a rubber band on my wrist. Everytime I want to impulse buy or impulse support I snap the rubber band. Hopefully it starts to work.
I just cancelled a lot of automatic billed items that I didn’t realize were costing me upwards of $65.00 a month.
I am a huge fan of Big Fish and Gamehous, just cancelled both of my subscriptions becuase I wasn’t using the services like I thought. Just cancelled my “credit monitoring” which is a waste of money. Also am cancelling hulu plus and my second dvr service at home. These all together add up to about 125.00 a month. Unreal.

Great job! Cancelling those unneeded monthly services is such a good way to reduce your expenses.

rivermoon1970

Yeah, i just realized how much I was spending in frivalous stuff. I am also looking into ways to reduce my cable bill and my cell phone package. I already do things like buy cereal for breakfast and have that at work, and I am trying really hard to bring my lunch. I had already stopped getting coffee all the time at Starbucks. Hubby and I discovered cold brewing and it has changed our coffee habits, lol. I cancelled some of the kickstarters that I originally backed. Also, i am putting my prepaid Amex on amazon. Each month I will have a budget on it and when it’s gone, its gone for that whole month. It’s amazing how much you can end up spending on that website. I don’t know what else I can do.

Our worst habit is the eating out. I’ve made so many other cuts and live pretty frugal. Those darn friends suck you in though with all the lunches and dinners , various events and charities they sponsor. I’ve been pretty good now about saying no to most things. Our friends don’t buy gifts for each other anymore unless someone really feels compelled (because they found the perfect gift) but there is no expectation of reciprocity and is always small. I said no cash donations, I only volunteer my time right now.

I have a ton of debt I’m trying to get out of. I’ve lined things up and my goal is 2.5 years to get out of debt. That is pretty steep considering my personal debt is as much as what I make in one year. It isn’t impossible though so long as there are no more major issues.

One trick I do for my spending is that I leave a secret cushion of $500 in my checking. When I balance my checkbook (yes I do this), it doesn’t account for the $500. So when I start running out of money the $500 is there in case of emergency only and I write it out as making my balance negative so the next paycheck is already partially used. So, if I see in my checkbook that I only have $50 left (really $550) then I won’t buy a discretionary item when I know I will need gas for the car. I don’t like to see the negative balance, it freaks me out.

That’s a good idea in terms of the “secret” $500 cushion. By the way, have you tried creating a debt payoff plan with ReadyForZero yet? It’s a free tool: http://www.readyforzero.com. If you try it, please let me know what you think of it. Thanks!

Little Tip: Don’t Carry Cash In The Summer Time. It is so easy to stop at yard sales and buy like $10 or $20 worth of stuff. Then, you see another one. This time, you spend $5 or $10. Without cash in your pockets, you won’t stop. (I actually very rarely carry any cash on me. It really keeps me nickel and diming myself to death. It also keeps me from spending money on those $1.00 candy bars in the break room).

David Molnar

btween child support,car insurance,gas,food,cable,unemployment making me pay back money they say i owe,i fee llke im in a hole! I think I have to work 4 jobas for the rest of my life,and I will never have enough money.Im cutting back,but how does the goverment expect people to not be homeless when it takes all their money away?(the credit card bills,the eating out, I take fuill accountability for however)

Hi David, I’m sorry to hear that! It must be very difficult. The only thing I can do is recommend that you read through our resource centers and see if some of the ideas in our articles can help you: http://blog.readyforzero.com/resources/.

Also, if you want one-on-one help, you should consider meeting with someone like a financial adviser, credit counselor, or bankruptcy attorney who can help you get back control of your finances.

consumer007

I order Club Sodas with lime. Many time bartenders don’t even charge for it, but I still have a drink and nobody knows it’s not vodka. 😉 But then again the people I drink with really wouldn’t care….

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